In a decision that stunned the more hardened market cynics, last week the Securities and Exchange Commission filed a lawsuit against Elon Musk, alleging that the Tesla CEO committed securities fraud when he Tweeted that he had "funding secured" for a bid to take his company private at $420 per share. Just as striking was that Musk decided in the 11th hour not to settle this lawsuit with the SEC, leaving some analysts mystified as to why Musk would want to spend the time, money and resources to fight the agency, who has a 94.7% success rate in market manipulation cases, according to Vertical Group's Gordon Johnson.
This defiance left many wondering what Musk's "genius" line of thinking was in believing that his actions may have been acceptable. Apparently, Musk thought a couple of conversations "verbal commitment" with Saudi nationals that supposedly culminated more than a week prior to his Tweet - and resulted in no tangible numbers or defined terms for a proposed deal - was enough to state to his 22 million Twitter followers that a go-private deal was then only contingent on a shareholder vote.
Overnight, the Wall Street Journal gave us our first look into the thought process of the CEO, and a glimpse into what Musk's defense strategy will look like.
The article astonishingly states that Musk believes the SEC’s "reasoning is flawed" in thinking that a written agreement and fixed price were necessary to get a proposed $70 billion plus go-private deal done. The deal would have been the largest buyout in history. Musk also reportedly didn’t think that regulators were taking into account that Saudi businesses have a history of using "verbal agreements in principle".
Perhaps this defense may hold some water for his original tweet, where he stated that he was "considering" taking the company private.
But to follow up with a claim that the only reason the deal wasn't certain was because it was "contingent on a shareholder vote", indicating that every other aspect of what would have been the largest buyout in history was already in place, is where Musk's reasoning will be severely challenged - especially with the Saudis themselves later making it clear that no formal deal had been agreed on - and not just on social media and the public comment circuit:
Lol, I just want it pointed out that this fucking guy has done SCORES of financing rounds for his SCORES of money-losing companies, and thus knows damn well when a funding is "secured" vs when it's just "talk." He's a lying sack o' shit.$TSLAQ— Mark B. Spiegel (@markbspiegel) September 28, 2018
... from William McGaw:
Elon Musk to analyst: "Boring, bonehead questions are not cool. Next?"
Boring, bonehead answers to securities fraud allegations are also not cool. Next?
... from Jeffrey Dugas:...